Swaps

Carter Enterprises can issue floating$-$rate debt at LIBOR $+1\%$ or fixed$-$rate debt at $9\%.$ Brence Manufacturing can issue floating$-$rate debt at LIBOR $+2\mathrm{.}6\%$ or fixed$-$rate debt at $12\%.$ Suppose Carter issues floating$-$rate debt and Brence issues fixed$-$rate debt. They are considering a swap in which Carter makes a fixed$-$rate payment of $7\mathrm{.}50\%$ to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence if they engage in the swap? Round your answers to two decimal places. Use a minus sign to enter negative values, if any.

Net payment of Carter:

$6\mathrm{.}50$

$\%$

Net payment of Brence: $-($LIBOR $+$

$6\mathrm{.}50$

$\%)$

Would Carter be better off if it issued fixed$-$rate debt or if it issued floating$-$rate debt and engaged in the swap?

The swap is good for Carter, if it issued

floating$-$rate debt and engaged in the swap

$.$

Would Brence be better off if it issued floating$-$rate debt or if it issued fixed$-$rate debt and engaged in the swap?

The swap is good for Brence, if it issued

floating$-$rate debt

$.$